French mobile-phone operator Bouygues Telecom (Paris, France) has blamed new entrant Free (Paris, France) for its dwindling profits and shrinking customer base over the first half of the year.

Net income at real-estate company Bouygues fell by 29%, to €278 million, compared with the first half of 2011, due to the setbacks at the group’s mobile-phone business.

Bouygues Telecom also expects full-year earnings before interest, tax, depreciation and amortisation to fall by 41% to around €750 million as a result of expenses related to cost cutting.

Bouygues Telecom was responsible for about 18% of Bouygues’ revenues last year.

Martin Bouygues, the company’s chief executive, holds Free, which launched a mobile-phone service in France earlier this year, directly responsible for his problems.

“The difficulties we are experiencing are due to competition and the low prices charged by Free,” he is reported as saying.

Owned by Iliad (Paris, France), which runs a successful broadband business in France, Free has shaken up the French mobile-phone market with its low-price, “no obligation” phone deals.

Arcep, France’s telecoms regulator, estimates that around 27% of French mobile-phone subscriptions are to “no obligation” services, which do not tie customers to long-term contracts, compared with about 20% over the 2008–11 period.

Bouygues lost some 379,000 of its mobile customers over the first six months of the year, and many are likely to have defected to Free’s new offer.

Bouygues is not the only established mobile operator in France to have felt the impact of Free’s market entry.

Nevertheless, investors are not entirely convinced that Free can succeed in the long run. Besides heavily undercutting its rivals on price, the operator is investing huge sums in the rollout of its network across France.

Martin Bouygues is reported to have said that France’s government has endangered the entire mobile-phone industry by awarding Free a license.

He has also criticised the government for raising taxes in the tough economic conditions.